SIPP

stardust23

I'm new to these. I'm over 55 and don't pay tax.

If I understand correctly, I can deposit £1000 in my pension, and the government (HMRC) will then pay in £250.  I can then withdraw the whole £1,250 and if I am taxed I can get a tax refund.  So I make £250 for nothing.

Is that correct?

dunstonh

only correct if you are a non-taxpayer.   If you are a taxpayer then 75% of the withdrawal is taxable.

Nebulous2

More or less. Some things to be aware of though - 

You can't do it indefinitely. If you have no earned income the most you can pay into a pension is £2880 per tax year, with tax relief of £720 giving you £3600. 

There may be charges to pay.

"Don't pay tax" isn't a clear description - do you have any income? That might change the situation slightly. 

If you expect to be back in paid employment at some point having drawn money from a SIPP will limit how much you can pay into a pension. 

 

Albermarle

Not all pension providers will allow this . As you will create a lot of admin for probably almost zero reward for them.
Hargreaves Landsdown is probably the best bet.Best SIPP Provider for £2880 In/£3600 Out within 1 Financial Year? — MoneySavingExpert Forum

Have you reached 55 with no pension and no income ?

stardust23

Nebulous2 said:

More or less. Some things to be aware of though - 

You can't do it indefinitely. If you have no earned income the most you can pay into a pension is £2880 per tax year, with tax relief of £720 giving you £3600. 

There may be charges to pay.

"Don't pay tax" isn't a clear description - do you have any income? That might change the situation slightly. 

If you expect to be back in paid employment at some point having drawn money from a SIPP will limit how much you can pay into a pension. 

 

Thanks for the info. My income is less than the Personal Tax Allowance by some way.

stardust23

Albermarle said:

Not all pension providers will allow this . As you will create a lot of admin for probably almost zero reward for them.
Hargreaves Landsdown is probably the best bet.Best SIPP Provider for £2880 In/£3600 Out within 1 Financial Year? — MoneySavingExpert Forum

Have you reached 55 with no pension and no income ?

I have an income but it is less than the Personal Tax Allowance. I don't need much more as I have no mortgage or rent.

I have a very small pension that will start paying out in 3 years because it doesn't yet meet the GMP threshold.

Albermarle

stardust23 said:

Albermarle said:

Not all pension providers will allow this . As you will create a lot of admin for probably almost zero reward for them.
Hargreaves Landsdown is probably the best bet.Best SIPP Provider for £2880 In/£3600 Out within 1 Financial Year? — MoneySavingExpert Forum

Have you reached 55 with no pension and no income ?

I have an income but it is less than the Personal Tax Allowance. I don't need much more as I have no mortgage or rent.

I have a very small pension that will start paying out in 3 years because it doesn't yet meet the GMP threshold.

You can actually contribute your whole earned income ( gross) to a pension and get tax relief on all of it, even if you do not earn enough to actually pay any tax .
So for example if your earn £6,000 pa, you can contribute £4,800 and tax relief of £1,200 will be added. 
The £2880/£3600 figures previously mentioned are for people with no taxable income at all.

The complication is that if you then withdraw it, you will be restricted to a max of £4,000 ( gross) contributions in future regardless of your income.

ader42

Albermarle said:

The complication is that if you then withdraw it, you will be restricted to a max of £4,000 ( gross) contributions in future regardless of your income.

As I understand it you can actually extract 3 pots of £10k or less (most likely in 3 consecutive years) under the small pots rule and this does not affect your future contributions...?

I guess you could (if you had the savings and no earnt income) put £2666 into a pension pot each year for 3 years and the government would pay in £2k over those 3 years and you could then withdraw that £10k under the small pots rule, giving you a nice £2k profit 3 times over a period of 9 years.

Obviously if you did have earnings you could do it faster.

MallyGirl

That is all true

Albermarle

ader42 said:

Albermarle said:

The complication is that if you then withdraw it, you will be restricted to a max of £4,000 ( gross) contributions in future regardless of your income.

As I understand it you can actually extract 3 pots of £10k or less (most likely in 3 consecutive years) under the small pots rule and this does not affect your future contributions...?

I guess you could (if you had the savings and no earnt income) put £2666    £2880 into a pension pot each year for 3 years and the government would pay in £2k over those 3 years and you could then withdraw that £10k under the small pots rule, giving you a nice £2k profit 3 times over a period of 9 years.

Obviously if you did have earnings you could do it faster.

Yes good point . Just a small correction in bold .

Also not all pension providers offer the possibility of a Small Pot Withdrawal. Although HL do .

Dazed_and_C0nfused

Albermarle said:

ader42 said:

Albermarle said:

The complication is that if you then withdraw it, you will be restricted to a max of £4,000 ( gross) contributions in future regardless of your income.

As I understand it you can actually extract 3 pots of £10k or less (most likely in 3 consecutive years) under the small pots rule and this does not affect your future contributions...?

I guess you could (if you had the savings and no earnt income) put £2666    £2880 into a pension pot each year for 3 years and the government would pay in £2k over those 3 years and you could then withdraw that £10k under the small pots rule, giving you a nice £2k profit 3 times over a period of 9 years.

Obviously if you did have earnings you could do it faster.

Yes good point . Just a small correction in bold .

Also not all pension providers offer the possibility of a Small Pot Withdrawal. Although HL do .

The £2666 figure was specific I think to remain within £10k.

£2666 x 3 = £7998 + £1999.50 tax relief = £9997.50